Which of the following best characterizes a recession?

The characterization of a recession is best defined by a decrease in real GDP over two consecutive quarters. This definition is widely accepted in macroeconomic theory and is used by economists to identify periods of economic contraction. A recession indicates a decline in economic activity, where real GDP, which adjusts for inflation, shrinks rather than grows.

When real GDP decreases for two consecutive quarters, it reflects reduced output and overall economic performance, signaling to policymakers and analysts that the economy is not performing well. This decline often leads to increased unemployment as businesses respond to decreased demand by cutting back on production and, consequently, labor.

In contrast, prolonged growth in GDP would indicate an expanding economy, while a significant increase in employment typically characterizes economic expansion, not contraction. An increase in consumer spending is usually associated with economic prosperity as well, rather than a recession, as it reflects increased consumer confidence and financial wellbeing. Therefore, the decrease in real GDP over two consecutive quarters succinctly captures the essence of a recession.